Obama’s ozone lesson

Coal-fired power plants
are a leading source of ozone pollution, so the relatively weak ozone rules the
Obama administration unveiled Wednesday upset some environmentalists who want to see much more
aggressive action against coal industry. The Environmental Protection Agency’s
limits on the disposal of coal ash, finalized last December, were also rather
mild. And even though the Clean Power Plan the EPA unveiled in August to
restrict carbon emissions from electricity was much stronger than the agency’s
paper-tiger draft,it still won’t change the trajectory of the power industry.

But to focus too intensely
on any one of those rules is to miss the dramatic effect of the overall flurry.
Over the last six-plus years, in addition to the relatively modest restrictions
on ozone, ash, and arguably carbon, the Obama administration has issued much
tougher regulations limiting soot, sulfur dioxide, and mercury emissions from
coal plants. A little-noticed “regional haze” regulation protecting air quality
around national parks has also been a coal-killer. In May, the EPA ordered 36
states to close loopholes that allow coal plants to emit unlimited pollution while
starting up, shutting down, or malfunctioning; in July, it proposed a new rule
cracking down on coal-mining operations that dump waste in streams; just last
week, it finalized a new “effluent” rule cracking down on toxic discharges from
certain coal plants.

When you put them all together,
Obama’s new rules are absolutely changing the trajectory of the power industry.
He has been an ally in the war on coal, if not exactly a committed warrior. The
actual warriors in the Sierra Club and other grass-roots groups have litigated
every rule, and some of the EPA’s final decisions have left them unsatisfied,
but the drip-drip-drip of regulatory action is driving up the price of coal and
the hassle of coal, while expanding their legal arsenal in its battles against
the coal industry.And every new rule provides a new reason for utility executives to
choose a different path.

And they are choosing a
different path. On Friday, for example, Xcel Energy filed plans to shut down
1,200 megawatts worth of coal power in Minnesota and add 3,500 megawatts of
wind and solar power, a major change to the coal-heavy plan Xcel filed in
January. Overall, 204 of the nation’s 523 coal plants have been scheduled for
retirement since 2010, eliminating 85,000 megawatts of dirty power. Utilities
must plan for the long term, and they don’t want to make long-term investments
in coal in a hostile regulatory environment.

Meanwhile, the
coal-friendly utilities that do want to make those investments are finding it
increasingly difficult to persuade their regulators to let them. After all, before
allowing a utility to upgrade a coal plant to comply with one new regulation—by
installing expensive scrubbers to reduce mercury, or building a “baghouse” to
filter soot—regulators have to ask themselves how many additional upgrades will
eventually be needed to comply with additional regulations, with ratepayers
footing the bill. The attraction to coal used to be that it was dirty but
cheap; the more it’s forced to clean up its mess, the less cheap it gets.

The strict mercury rules
have already scrambled the financial calculations of the power industry, and
the marquee carbon plan will re-scramble them, but less prominent actions can
contribute to the scrambling as well. Take the obscure “start-stop-malfunction”
rule, the EPA’s May effort to close a loophole that exempted many coal plants from
penalties for uncontrolled emissions during startups, shutdowns, and technical
difficulties. Al Armendariz, the Austin-based regional director of the Sierra
Club’s Beyond Coal initiative, said some aging plants in Texas can produce as
much pollution in those short periods as they produce the rest of the year—and
the state routinely lets them get away with it.

Now the EPA is trying to
force states to take startup and shutdown emissions seriously, which would
force the owners of the offending plants to make a decision: Either modernize
their inadequate soot controls, which would cost tens of millions of dollars,
or phase out the plants. And even if the plants seem viable with these
upgrades, the owners have to weigh the potential costs of future upgrades.

“The state of Texas has a
history of playing games, but EPA can limit their ability to turn a blind eye,”
said Armendariz, a former EPA official who had to resign after expressing
public hostility to fossil-fuel interests. “And remember, these plants will
have to deal with the regional haze rules, too. Plus the Clean Power plan. Do
you want to invest in an aging plant with all that coming down the pike?

Richard Alonso, an
environmental lawyer at Bracewell & Giuliani who represents industry in
pollution cases, said he expects more than a dozen states to sue EPA over the
start-stop-malfunction actions. “It’s just more paperwork and more permitting
and more regulatory burden,” Alonso said. It would just be an annoying little
dispute, he said, except that it’s part of a barrage of annoying little
disputes, all of which add up to an unprecedented assault on a besieged
industry.

“It’s death by a thousand
cuts,” Alonso said. “It’s another nail in the coffin.”

This week,
environmentalists were dismayed by the EPA’s ozone rules, which tightened
limits on smog-producing air pollution from 75 parts per billion to 70 ppb, but
not to the 60 ppb that some scientists and health advocates had recommended.
“Not good enough,” said Environment America. “A betrayal,” complained
Earthjustice. But the National Mining Association sounded even more upset,
placing the ozone rules in the context of the EPA’s larger flurry of “onerous
regulations.” Ozone is merely the latest entry point for investment decisions
that haven’t been going coal’s way.

“Once again the fate of a sustainable manufacturing revival and breakout
economic growth is jeopardized by this regulatory agency,” the association
said.

As the drumbeat of
coal-plant retirements has continued, huge coal interests like Alpha Natural
Resources, Walter Energy, and Patriot Coal have been forced into bankruptcy.
Beyond Coal hopes to see the entire industry shut down in the U.S. by 2030;
that may sound unrealistic, but so did its goal of seeing one third of the
industry shut down by the end of 2015, which is on track to happen.

The main problem for coal is that anti-pollution rules are making it more
expensive. But another problem for coal is that its competition is getting
cheap. Natural gas prices remain low. Wind prices have dropped more than 60
percent since 2009. And solar prices have dropped more than 80 percent. This
morning, Solar City unveiled the world’s most efficient solar panel, which it plans
to manufacture in Buffalo and sell for an unheard-of 55 cents a watt. Analysts
at Deutsche Bank and other investment houses have predicted that by the end of
2016, solar will be cost-competitive with coal in most U.S. states. And
investors know how much it will cost to run a wind or solar farm for the next
two decades, which is no longer true of a coal plant.

So far this year, most of the new power generating capacity in the U.S. has
come from wind and solar; none of it has come from coal. SolarCity chief
technology officer Peter Rive told me the company is selling a new rooftop
system every two or three minutes; its business grew 95 percent last year, and
its workforce has grown from about 600 to about 14,000 in the Obama era.

“I don’t know if we can sustain this growth rate, but we’re going to have a lot
of growth,” Rive said. “Things are changing really fast.”

Of course, solar power doesn’t produce smog, soot, mercury, effluent or ash,
during startups, shutdowns or any other time. It doesn’t bury streams or warm
the planet, either. President George W. Bush’s EPA didn’t update many clean-air
or clean-water regulations, so it didn’t hurt coal; some of Obama’s updates
have been more aggressive than others, but all of them have tilted the playing
field against coal.

These trends will continue if Obama’s successor favors strong regulations of
coal-fired pollution, or even modest regulations of coal-fired pollution. What
could slow them down or even reverse them is a successor who favors
deregulation of coal-fired pollution, as Republican leaders in Congress have
advocated. This won’t be a big issue in the 2016 campaign, and to the extent it
is the debate is likely to swirl almost entirely around carbon, but it could
determine the future of American power.